Trump is an insider

Kimberley Strassel of the Wall Street Journal is always outstanding and worth your time. This weeks she absolutely nails Donald Trump:

Because, you see, Donald Trump is the man. An outsider to the elite society that Washington inhabits? An avenging angel of a faltering working class? Laugh. Out. Loud. This is the man who was born to a silver spoon, who self-selected a life strictly in the company of the rich and powerful, and who built a fortune by using his connections and sticking it to the little guy.

As they say read the whole thing.

The Evils of Capitalism

Last week William Galston had a piece in the Wall Street Journal  discussing, among other things why millennials were attracted to Bernie Sanders and Socialism. Part of his last paragraph was this statement:

These millennials have no experience of a successful capitalist system and no memory of communism’s failure. Small wonder, then, that as many of them look favorably on socialism (whatever they think it is) as on a market economy.

I took exception to this idea in the comments and wanted to expand on my brief comment here.

The millennials indeed have experience of a successful capitalist system. They have not been educated to understand it though.  The iPhones, social media, Uber and all the myriad services and devices they take for granted are the product of a capitalist system. Name one successful invention, other than the Ak-47, from a communist or socialist system.

Our education system, media and their baby boomer parents have failed to actually explain capitalism and socialism. In fact the education system and media have consistently painted a distorted caricature of capitalism. Movies such as Wall Street, There Will be Blood, Wolf of Wall Street are just a few examples of the more flagrant anti-capitalism offerings.  The progressive/liberal bias in the universities has been well documented. The K-12 system does nothing however to prepare students to counter the later biases. Most have had no exposure to Hayek or Friedman so they are unprepared to make an honest evaluation. The hear the siren song of socialism – equality for all and fairness in contrast to the caricatures of heartless robber barons.

It is human nature that we will have different interests, abilities and outcomes. The only way for socialism to remove inequality is through coercion – controlling the means of production, forced redistribution of resources or restriction on access. The key to all these is a lack of freedom for the individual and generally a lower standard of living for all but the favored elites.  Venezula is just the latest example. A member of OPEC with some of the largest oil resources in the hemisphere embraced socialism under Chavez and is now a basket case except for Maria Gabriel, Chavez’s daughter. Venezuela is a bit unique in how quickly the economy collapsed but every socialist system ever tried has ended the same. As Margaret Thatcher famously said the trouble with socialism is that you eventually run out of other people’s money. Once that happens the only recourse for the state is increasing harsh coercion.

Of course socialists don’t talk about coercion – they talk about reducing inequality and fairness but they don’t define what level of inequality is acceptable, if any or what is fair. Why should the average American have the same wealth as Bill Gates or Steven Jobs? These individuals created very large, very successful corporations employing hundreds of thousands of individuals, changing the fabric of everyday life for billions of people. Is this inequality worse than the shared misery of Venezuela when the well connected have the wealth but have not created anything of value?

The socialists never define fair. What is a fair share for people to pay? Should the government be entitled to take a majority of your wealth or income? Why? Would this really reduce inequality? If the government confiscated 100% of Bill Gates net worth, $79B according to Forbes and distributed all of it to 320 million Americans (a very fair distribution for every one except Mr. Gates) each individual would receive $246, doing little to ease income inequality.

What capitalist evil requires such draconian measures? Freedom of choice is the bane of socialists. Bernie Sanders rails against 23 types of deodorants; who is he to decide? The capitalists believe the market will decide. If consumers don’t want so many choices they will vote with their wallets and some brands or companies will disappear. Approximately 50% of new businesses will not see their fifth birthday. Without government support or intervention life is tough. These struggling enterprises are a source of income inequality so reviled by progressives. The freedom consumers enjoy to buy or not buy your product or service is a boon to consumers and a constant worry to the businesses. Thus the cry “…somebody must do something”. And the government does something – licensing laws are a favorite to restrict supply, direct intervention or subsidies, sugar price supports, ethanol subsidies, electric car subsidies, ad nauseam.

The second bane of socialism is the freedom to make poor choices. In a free society people will often make poor choices or decisions. Some individuals choose to drop out of school, take drugs, eat poorly, drink large sodas, whatever. These poor choices will often lead to income inequality due to lack of education, skills or substance abuse. The committed socialists and progressives know what is best for the masses and step in to protect individuals from the consequences of their poor choices, thus perpetuating poor choices.

Life is not fair. We should demand equal opportunity at the starting line but not expect equal outcomes.

The Donald’s simple solutions

I only watched a brief portion of the GOP debate in SC last night. I was appalled and quickly repelled by a number of factors:  The audience seemed biased and I assumed stacked by some one; their behavior was boorish and more appropriate for a WWF grudge match. The moderator, again, a partisan democrat hack. The candidates with the exception of Kasich and Carson seemed focused on calling the other liar. However one point by Trump particularly caught my attention – his response on Carrier’s recent announcement they would close a factory in Indiana and move the operation to Mexico.

Trump responded to a debate question about this story with a brilliant, simple plan – Trump would tell them not to move and threaten to work with congress to pass a tax on their product imported from Mexico. Brilliant and simple, saving some 1400 jobs. The imperial Donald as Jean Luc Picard “…Make it so…” Trump would like us to believe he can save jobs or return manufacturing to the U.S. simply by force of will, ignoring economic reality.

A rather cursory investigation hasn’t yielded much detail on the decision other than some generalities about being closer to suppliers based in Mexico and competitors based there. Obviously labor rates are a key consideration but other factors, some under government control must enter into the decision:

  • What effect does Obamacare have on their labor costs?
  • Have recent EPA rulings on coal power plants impacted electricity costs?
  • Is the plant facing major upgrades and potential permitting issues?
  • Has the sluggish economy reduced demand, hence an evaluation of capacity and consolidation to reduce costs?

I’m sure some one closer to manufacturing economics can think of other factors as well. The point is that Trump ignores the reality on the ground, would like us to believe the solution is simple, and probably believe it himself. An imperial edict to continue operating a marginal or uneconomic facility will save jobs.

I have seen little evidence that Trump has firm guiding principles. He believes everything is negotiable  and that he is the consummate deal maker. I will concede that Trump has few billion dollars more than I do. However his fortune is actually a large inheritance from his father that has grown about the same as the return on a stock index fund over the past forty years. He has not out performed the market. He has no experience actually manufacturing anything. His comments about returning Apple manufacturing to the U.S or forcing Carrier to remain simply demonstrate his lack of seriousness or qualification.